-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WQT2tEf9+Nt5tAQkK/y0Q0zVQcKoGqO19Aic+ByVtdj8WB9E3Ypze+MYu0bQvHPO CgEOpYKNzqJYseNzjK0Kbg== 0001013993-01-500017.txt : 20010516 0001013993-01-500017.hdr.sgml : 20010516 ACCESSION NUMBER: 0001013993-01-500017 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELLECTUAL TECHNOLOGY INC CENTRAL INDEX KEY: 0000859914 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER TERMINALS [3575] IRS NUMBER: 841130227 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-29138 FILM NUMBER: 1640009 BUSINESS ADDRESS: STREET 1: 10639 ROSELLE STREET STREET 2: SUITE B CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 619-552-00 MAIL ADDRESS: STREET 1: 303 EAST 17TH AVE STREET 2: STE 800 CITY: DENVER STATE: CO ZIP: 80203 FORMER COMPANY: FORMER CONFORMED NAME: BRIDGESTONE CORP DATE OF NAME CHANGE: 19930328 10QSB 1 iti0301q.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2001 Commission file number: 0-29138 INTELLECTUAL TECHNOLOGY, INC. (Exact name of small business issuer as specified in its charter) Delaware 84-1130227 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization ) 1945 Camino Vida Roble, Suite O, Carlsbad, California 92008 (Address of principal executive offices) (760) 929-9789 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes -X- No --- As of May 11, 2001, 9,842,681 shares of common stock, par value $0.00001 per share, were outstanding. Transitional Small Business Disclosure Format (check one): Yes --- No -X- INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheet, March 31, 2001 1 Statements of Operations and Accumulated Deficit (Unaudited) for the three month periods ended March 31, 2001 and 2000 2 Statements of Cash Flows (Unaudited) for the three months ended March 31, 2001 and 2000 3 Notes to financial statements 4 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 5-7 PART II. OTHER INFORMATION 8 Signatures 9 Intellectual Technology, Inc. Balance Sheet March 31, 2001 (unaudited) ASSETS Current Assets Cash and cash equivalents $ 454,966 Accounts receivable 722,023 Inventory 380,875 Deferred tax asset 75,500 Prepaid expenses 88,160 ------- Total current assets 1,721,524 Property & Equipment Contract equipment 6,485,509 Equipment - non-contract, office, furniture and improvements 78,626 --------- 6,564,135 Less: Accumulated depreciation 5,566,477 --------- 997,658 Other Assets Patents, net of accumulated amortization 117,489 Deferred tax asset 81,100 Due from related parties 30,298 Other non-current assets 2,545 --------- Total assets $ 2,950,614 ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 262,595 Income taxes payable 134,336 Accrued expenses and reserves 123,927 Note payable 161,733 Due to related party 10,791 --------- Total current liabilities 693,382 Other Liabilities Long-term debt, net of current portion 395,856 Accrued loss reserve, net of current portion 205,593 Due to related party - long term 132,696 --------- 734,145 --------- Stockholders' Equity Preferred stock, $0.00001 par value, 10,000,000 shares authorized, no shares issued or outstanding - Common stock, $0.00001 par value, 20,000,000 shares authorized, 9,842,681 shares issued and outstanding 98 Additional paid-in capital 1,154,452 Retained earnings 368,537 --------- 1,523,087 --------- Total liabilities and stockholders' equity $ 2,950,614 ========= The accompanying notes are an integral part of the financial statements. 1 Intellectual Technology, Inc. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT (unaudited) For the three months ended March 31, ---------------------- 2001 2000 ------------ ------------- REVENUES Sales, net $ 1,412,757 $ 1,942,360 COST OF REVENUES Depreciation and amortization 72,836 457,762 Material costs 355,523 348,658 Maintenance and other 246,253 268,987 ------------ ------------- Total cost of revenues 674,612 1,075,407 ------------ ------------- Gross profit 738,145 866,953 OPERATING EXPENSES Selling, general and administrative 270,033 298,095 Research and development 44,663 32,872 Depreciation and amortization 18,464 110,224 ------------ ------------- Total operating expenses 333,160 441,191 ------------ ------------- Income from operations 404,985 425,762 OTHER INCOME (EXPENSE) Interest income 6,122 6,105 Interest expense (20,789) (71,038) ------------ ------------- Net income before income taxes 390,318 360,829 Income taxes (152,900) (138,573) ------------ ------------- NET INCOME 237,418 222,256 Retained earnings (Accumulated deficit) Balance, beginning of period 131,119 (324,263) ------------ ------------- Balance, end of period $ 368,537 $ (102,007) ============ ============= INCOME PER SHARE - BASIC $ 0.02 $ 0.02 ============ ============= INCOME PER SHARE - DILUTED $ 0.02 N/A ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 9,923,711 10,000,000 ============ ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 10,053,211 N/A ============ ============= The accompanying notes are an integral part of the financial statements. 2 Intellectual Technology, Inc. STATEMENTS OF CASH FLOWS (Unaudited) For the three months ended March 31, ---------------------- 2001 2000 ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES $ 209,369 $ 502,767 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of non-contract equipment (1,671) (1,067) Investment in contract costs and equipment (205,685) (1,215) ------------ ------------- Net cash flows from investing activities (207,356) (2,282) CASH FLOWS FROM FINANCING ACTIVITES Repayment by related party 8,774 - Debt repayments (40,296) (409,972) Redemption of common stock (31,800) - ------------ ------------- Net cash flows from financing activities (63,322) (409,972) ------------ ------------- NET INCREASE (DECREASE) IN CASH (61,309) 90,513 CASH AND CASH EQUIVALENTS, beginning of period 516,275 505,723 ------------ ------------- CASH AND CASH EQUIVALENTS, end of period $ 454,966 $ 596,236 ============ ============= The accompanying notes are an integral part of the financial statements. 3 Intellectual Technology, Inc. NOTES TO FINANCIAL STATEMENTS (unaudited) 1. Management's representation of interim financial information The accompanying financial statements have been prepared by Intellectual Technology, Inc. without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These financial statements include all of the adjustments which, in the opinion of management, as necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. These financial statements should be read in conjunction with the audited financial statements at December 31, 2000. 4 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements contained in this report, including statements concerning the Company's future cash and financing requirements, and other statements contained herein regarding matters that are not historical facts, are forward looking statements; actual results may differ materially from those anticipated. Plan of Operations and Background The Company (ITI) designs, manufactures, and leases systems for the automated preparation and dispensing of motor vehicle registration forms and license plate decals. ITI refers to the materials used in the preparation of the vehicle forms and decals as "media". Until 1996, ITI was principally engaged in research and development of its products and generated only limited operating revenues. In November 1996, the Company entered into a three-year lease agreement with the State of Indiana, to provide printer equipment and self-service terminals for production of the State's vehicle registrations. The revenue from this lease agreement is billed on a per transactions basis and includes the media, equipment maintenance and some software updates. This contract has been extended through October 2002. The self-service terminals (SST's) are fully automated and do not require State personnel to be present during the renewal process. Some of these SST's are located in shopping malls. ITI has also developed Customer Convenience Centers for use in the motor vehicle offices, which allow for automated transactions, but are attended by a State employee. ITI is presently negotiating for the sale or lease of this equipment. ITI also has an agreement to sell printers and media to the prime contractor for the State of Maryland motor vehicle offices, although this has not been a significant source of revenue. In March 1999, ITI entered into a five-year contract with South Dakota to supply printer equipment, equipment and software maintenance and media on a per transaction basis. During the quarter ended March 31, 2001, ITI entered into a subcontractor agreement as part of a contract with the State of Louisiana to provide printer equipment, software and equipment maintenance, and media to produce the State's motor vehicle registrations. ITI does not expect to realize significant revenue from this contract until the second quarter of 2001. Results of Operations For ease in presenting the financial data, figures have been rounded to the nearest thousand. For the three months ended March 31, 2001, contract revenues decreased from $1,942,000 for the three months ended March 31, 2000, to $1,413,000, a decrease of $529,000 or 27%. This decrease in revenue is due primarily to a transaction price decrease in a contract. 5 Item 2. (cont.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Gross profit for the three month comparisons decreased from $867,000 (44.6% of sales) to $738,000 (52.2% of sales) as a result of the aforementioned price decrease. The gross profit percentage increased due to the effect of the price decrease in the contract being offset, on a percentage basis by: (1) decreased contract depreciation due to changes in the contract equipment life; and, (2) lower maintenance costs due to lower software costs. Operating expenses decreased 24.5% from $441,000 for the three months ended March 31, 2000, to $333,000 in 2001, a decrease of $108,000. Selling, general and administrative expenses decreased from $298,000 to $270,000, a decrease of $28,000 or 9.4% primarily due to lower payroll resulting from an employee termination and the death of two employees (- $92,000) offset by: (1) less payroll in 2001 versus 2000 attributable to research and development efforts by existing employees ($18,000), raises to existing personnel ($5,000), increased expense of a managing Board of Directors ($15,000); and (2) increased general and administrative expenses in several areas ($26,000). Depreciation and amortization decreased from $110,000 for the three months ended March 31, 2000 to $18,000 in 2001, a decrease of $92,000 due to re-evaluation of the remaining useful lives of the Company's patents. Research and development expenses for the three months ended March 31, 2001 and 2000 were $45,000 and $33,000, respectively, representing 3.2% and 1.7% of sales, respectively. The increase from last year reflects the addition of an employee. The Company will continue to engage in research and development of additional applications of its products in related areas and new product development. Interest expense decreased from $71,000 in 2000 to $21,000 in 2001, a decrease of $50,000, reflecting the pay down of equipment financing. 6 Item 2. (cont.) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Liquidity and Capital Resources During the last two fiscal years, the Company has been able to use cash flow from operations to repay debt and, as a result has generated significant increases in working capital. As of March 31, 2001, the Company has working capital of $1,028,000 versus $398,000 as of March 31, 2000, an improvement of $630,000. Certain equipment financing with a monthly payment of $134,695 was fully paid off in December 2000. The Company's remaining debt service consists of contract financing with a monthly payment of $17,680 ($212,000) per year) through April 2004 and a patent purchase payment of $5,000 per quarter ($20,000 per year) through March 2011. For the remainder of 2001, the Company expects to spend another $70,000 on contract equipment for contracts in effect as of December 31, 2000 and expects to pay its debt and capital equipment obligations from internally generated cash flows. In connection with its expanding contract base, the Company expects to incur additional capital expenditures in 2001, which will be funded from both internal cash flows and external financing from lenders with whom the Company has established relationships. The following is a summary of the Company's cash flows from operating, investing, and financing activities: Three months ended March 31, (rounded) 2001 2000 Operating Activities $ 209,000 $ 503,000 Investing Activities (207,000) (2,000) Financing Activities (63,000) (410,000) Net effect on cash $ (61,000) $ 91,000 Cash flows provided by operations decreased from $503,000 in 2000 to $209,000, a decrease of $294,000 due to lower gross profit before depreciation. Cash flows used in investing activities increased from $2,000 in 2000 to $207,000 in 2001 due to: (1) Continued installation of equipment for existing contracts ($33,000); (2) New contract startup costs ($44,000); and (3) Purchase of printers to satisfy purchase commitments for future contract use ($129,000). Net cash used in financing activities decreased from $410,000 in 2000 to $63,000 in 2000 due to payoff of significant debt service in December 2000. Under the Company's current financing arrangement, certain contract receivables have been assigned to the note holder. The amount of monthly cash flows from a contract is remitted net to the Company after debt service is satisfied. 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 3. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None 8 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTELLECTUAL TECHNOLOGY, INC. By: /S/ Craig Litchin By: Craig Litchin Principal Financial Officer Date: May 15, 2001 9 -----END PRIVACY-ENHANCED MESSAGE-----